A few days ago the article Has The Long Tail Era Fallen? pointed out some of the reasons for the decline of P&G and Unilever. The author illustrated his points with statistics. However, the article still couldn’t satisfy my desire of getting to the bottom of it.

I had worked at an international FMCG company for three years before both in the area of marketing and sales. I had also run a brand independently in addition to that, and therefore I believe I do have some logical opinions on this matter. So here are my thoughts.

In the world of marketing, there is an incredibly influential book called How Brands Grow: What Marketers Don’t Know, in which the author Byron Sharp examined the statistics from multiple countries and combined them with his years of marketing study. The result he got was quite simple, but also very convincing:

Any growth of FMCG brands can be attributed to two factors: Mental Availability and Physical Availability.

Let’s get a closer look at these two factors.

What is mental availability anyway? Your brand’s mental availability, or brand salience, refers to the probability of a consumer noticing, recognizing, and thinking of your brand in a buying situation. This is critically different from brand awareness, which is simply the link to the name of the product category and depends on a single, specific cue.

It’s known to everybody that human memory is formed by lots of different nodes that connect to each other. Every brand’s image has a series of nodes linking to it. For instance, when you think of McDonald's, you will naturally think of hamburgers and fast food etc. All these impressions will have an impact on people’s consuming behavior, experience and the marketing activities.

A brand can achieve greater mental availability than its competitors if it’s easier to access in consumer memory in more buying situations and for more consumers. Brands can build their mental availability by developing a number of different memory links in buyers’ minds. As we’ve mentioned in previous posts, this can be done via distinctiveness and clear branding. Maintaining customer share of mind depends on consistent and quality advertising: deployment of the same distinctive assets is what will help your brand win in the marketplace overtime.

Now that we better understand mental availability, what is physical availability and how does it impact your sales? Your brand’s physical availability refers to the breadth and depth of your distribution in time and space. So how much product you’re supplying in different areas at different times.

It should be noted that a brand should never be only satisfied with its success in availability. For instance, nowadays you can pretty much buy a coca cola anywhere in a city and Coca Cola still strives for improving its availability. Similarly, the bigger the shelf a brand has in a supermarket, the promotion effect is more prominent and the availability will be increased.

The higher the availability is, the more likely the consumers will choose that one particular brand.

Mental availability and physical availability are the key factors to almost every FMCG business. From this perspective, we can dig deeper into the decline of FMCG giants.

Failure in competing for the share of mind

How to build up a brand’s mental availability?

I believe there are two key factors that affect this matter. First, a brand must have a clear and sound positioning. Secondly, the brand must be capable of attracting the consumers’ attention for a long term. Here’s an example to further illustrate this matter. What makes a boy remember a girl? That girl should be pretty and the boy must interact with the girl a lot. These two factors actually influence each other.

Unfortunately, in these two competitions, luck is not at FMCG giants’ side.

First let’s look at the brands in the FMCG industry. Most of them have a history of over 5 years, and some of them are in the business for over 20 years. However, these companies still have a positioning made 10 years ago.

Some of these positioning have been around for over a decade and some functions have become a must-have of some products. For instance, tooth pastes must be able to whiten teeth, shampoos are supposed to get rid of scurf, and body gels should be able to kill germs.

Emotional positioning has been used for years, and it is gradually losing touch with the consumers born in the 80s and 90s.

In the past two decades, many FMCG brands had won their place in the market a sole position. Fast forward to today, the mutual emotion interaction has become more and more important.

The consumers have changed, and young people have become the mainstream of consuming power.

They have more consuming power and care less about the price but the quality.

They are world citizens. They go abroad to study and travel overseas, enjoying benefits that have become available to the public. They have a broader outlook and know what’s best for them.

They like to express themselves, telling people what they like and what they dislike. They tend to believe in the reputation of products instead of what the ads have been telling them.

In addition to that, the advancement of the mobile Internet also brings profound changes to how they use media. Former executive chief editor of Newsweek Chen Xu mentioned in the book The Editor In Chief Is Dead:

“The Internet has made gathering, generating, editing, and spreading information and news a common skill from a professional skill. It expands the reach of information (in the past journalists discover information while at present new media and we-media provide the information) and enhance its functions (in the past it happens internally for media, and now it happens on the Internet).”

“The Internet has made gathering, generating, editing, and spreading information and news a common skill from a professional skill. It expands the reach of information (in the past journalists discover information while at present new media and we-media provide the information) and enhance its functions (in the past it happens internally for media, and now it happens on the Internet).”

The same thing also happened to advertising, which showcases the second factor mentioned above: The attention of the consumers.

In the past five decades, the FMCG business has the following simple circle:

When a mainstream public media launches lots of ads to attract consumers’ attention, since almost everyone is the target audience, the actual return is in fact much greater than the cost on advertising (the gross profit rate of FMCG products is about over 60%). Advertisers then can earn more money and pour in some of the money to launch more ads. This is a growing snowball.

When the public media are no longer popular among the young consumers, the FMCG companies that are backed by this cycle become the biggest victims, especially car makers.

At present, some WeChat official accounts’ advertising fee are as high as ¥1 million per ad. If you really calculate the return, you will realize just how much the giants miss the gold era of TV.

This gap is immeasurable.

There is a famous American TV series called Mad Man and I really liked Seth Godin’s comment (American marketing expert, with over 20 published books on marketing) on it:

“If you look at all the series of mad man, you’ll figure out that the advertising agencies are not good at advertising, they are good at persuade advertiser to buy more ads."

This comment cuts straight to the point and it also resembles to the two key points we have gone through before. Sometimes it just doesn’t really matter if a girl is pretty or not. She also has to be around the boy for many times then the boy will remember her (it also works the other way around). Therefore, if we were to determine which is prior to which, then the latter is more important, since good stories are hard to create but you can always buy ads.

Thus, when almost all the FMCG giants are losing touch with their brand positioning and losing the consumers’ attention, the epic failure in the competition for share of mind is inevitable.

What’s worse, there are more serious problems.

The decline of physical availability

Consumers of the FMCG industry has very low loyalty to brands.

Byron Sharp found that 50% of the sales volume of a certain FMCG brand came from the light consumers (account for 80% of the consumers) who would only purchase the brand’s product for one or two times.

It’s obvious that in such situation, dominating the channels and resources is the most important element here.

FMCG giants insure their dominance in channels though buying bigger shelves at supermarkets, more promotion posters and more on-field sales personnel etc. Higher coverage of the brand and more channels further boost the physical availability.

Since 2013, FMCG products started to go e-commerce. JD and Tmall’s major battle in the second half of the year will accelerate this change as well.

Although today e-commerce has already accounted for 10% or more of FMCG giants’ business, most brands’ online sales volume lag far behind their offline sales.

It’s not for the fact that FMCG giants failed to position in the e-commerce industry, but the fact that physical availability has harvested the offline market share that overpowers share of mind.

When the monopoly in resources is broken, a new order is established. The diversifying consumer groups and the demand for customization make e-commerce thrive. The long tail effect gives many brands that don’t have a chance in the offline market the opportunity to thrive.

The new competition outlook is gradually forming and it’s starting to influence the offline layout. Many popular online brands are going offline, further consuming the space for FMCG giants.

Hardship in transformation: The last straw that breaks everything

The FMCG industry is consumer-oriented. No company in this industry can go against consumers’ demand.

But the recent development makes people start to doubt: Are the giants really aware of the consuming tendency?

The truth is, they are not.

The FMCG industry probably has the most detailed operation and consumer statistics among all industries. Every year every FMCG giant will spend billions of RMB on market research.

However, realizing the tendency is one thing, bringing out a solution is another.

When a business model and business operation have been running successfully for over half a century, they literally fixate a company’s structure, which is impossible to change in a short time.

Let’s look at the market department of FMCG companies for example. P&G and Unilever divide the market department into two sub departments: one responsible for design relevant to brand asset resource with the task to make ads, one responsible for launching ads to the media and operation.

It’s apparent that these two giants have built a systematic mechanism in which even a high-school graduate can do his work right. In addition to that traditional marketing model is highly reliant on marketing budget and standard TV advertising channel. This result in the fact that a team of 2 or 3 people, or 6 to 10 people can manage a brand that’s worth billions.

But the new media form is fragmented and lacks a standard channel. That’s why a structural organization is needed to react to this change. But the thing is, can people adjust to this change?

On one hand, these people are fully accustomed to the original work system and lack the potential that fresh graduates have. On the other there are just very few of them, and therefore companies can only rely heavily on advertising firms. What’s more, advertising companies also need to undergo transformation themselves.

Secondly, when most industry leaders of the FMCG industry are the ones born in 70s, or foreigners, it’s harder for the brands to really understand the young generation. They have never used Bilibili before, they seldom buy things online, they find it hard to understand young people’s culture and the constant changing content consumption. Most of them are at where they are now for their success in the traditional media age.

In contrast the book Who Say Elephants Can’t Dance, written by famous professional manager, former CEO of IBM, Louis V. Gerstner, in reality, it’s harder to make an elephant dance than an ant.

The hardship in transformation is the last straw that breaks everything.

It can be concluded that the failure in mental availability and physical availability and the hardship in transformation are the three core reasons for the downfall of FMCG giants.

The statistics in the long-tail are just merely a tip of the ice berg. The shift of consumer tendency and self-transformation are the deeper reasons for the falling scene.

As matter of fact, two groups of people can be blamed for most issues in the FMCG (Fast Moving Consumer Goods) industry: The consumers, and industry leaders of the FMGC industry themselves.